Inflation at 5% - What's in store for the Indian Economy

I was just curious about the economic situation of our country from some time. And i came to some interesting conclusions. So here they are,

It is prevalent information that the per capita income of India is ~$1800 or ~1.4 Lakh rupees. But most believe this is a misleading information because of the massive population and income inequality of the country. The true 'Mean' or Median income per Indian, as per some studies is approximately 42-45,000 rupees per month. And this means there are almost an equal number of people earning below this as are earning more than this. Probably more on the lower side.

We can assume on average most households make ~40,000 a month and in this they manage their expenses as well as do some amount of savings for the future.

Now i looked up some data on the CPI or consumer price index based Inflation rate of India in past 12 months. Past 12 months because, in Past 12 months, a tsunami of liquidity has been pushed into the economic system by many countries. United states has added around 8 trillion dollars into circulation in last 12 months. Europe has added approximately 1 Trillion Euros. India announced it's 20 Lakh crore stimulus package last year in May 2020. It included Collateral free loans of around 3.5 lakh crores for MSMEs, which the government claims have been disbursed (although we never got it, neither anyone in my network) but let's assume this money has also entered the circulation.

Now i don't know if any common man in India was helped, but at-least this much money went to some big corporations and then i don't know how much reached the common man or the small startups.

Whatever be the case, 1 thing we all know is that trillions, (~10 trillion) USD worth of new currency was pushed into the economy.

Where did all this go?

Well, mostly to government bodies, big corporations and Hedge funds, many big banks got it and those large VC firms (hence the unicorn rush).

The effects of the stimulus packages are yet to be seen, but what we are definitely seeing is it's pressure on retail inflation. If there's too much money in circulation and there is not enough production, supply or demand to 'consume it', inflation is bound to set in.

If this goes on with good jobs and increase in salaries and incomes for businesses, than all this is not a problem. But, i don't get the vibe that, there has been any increase in these stats.

Assuming an average Indian household making ~40K a month and managing to save around 5K and run expenses in around 35K for their family. At an average inflation rate of ~5% per annum, we can surely say, that the things they were able to manage in 35K in early 2020 would cost around 40,500/- by early 2023.

Now, do you see where we are going?

It's 2021 already. In just 2 years, if their incomes don't rise significantly, there would be a financial crunch.

Now i have some important conclusions from this ,

1. Items that are primarily consumed by the population earning below the national average of 40K per month, will see a sharp decline in consumption, unless the items are absolutely essential.
2. This would definitely lead to a poor growth of businesses and companies relying on this market segment.
3. The businesses dependant on premium customers, luxury products and those who have these high value customers will sustain and may even see massive growth, because of the pent up demand, and increase in salaries more likely in this group.
4. Export driven businesses, that give specialised services, not easy to automate will definitely make big bucks.
5. I see FMCG to not do well in coming 3-4 years.

Other than this, i am also concerned such inflationary pressures will push many people into money making shortcut schemes, corruption may rise and so can scams or crimes of various forms. I would like to be optimistic and hope we don't come to this.

What can you as a person do to protect you against this scenario,

1. Increase your income -- We all must try to increase our income sources.
2. Build Assets
3. Make good investments - regular investments
4. Educate yourself about money in free time
5. Own Assets

These are some of the only ways to ride this tide. Build a ship and you will sail through. Even prosper.

Now i am not an economist, but i do have a fairly good idea about it. And this is what my analysis tells me.